The EUR/USD has increased, boosted by comments from ECB President Lagarde about a less dovish approach. A fall in U.S. yields, with the 10-year yield dropping below 4% for the first time since April 7, also helped this rise. Lagarde mentioned that the disinflation process has ended and trade uncertainty has decreased. From a technical perspective, the EUR/USD pair has regained the 100-hour moving average at 1.1722 after facing seller resistance. Momentum picked up due to Lagarde’s comments and falling yields, benefiting buyers. Right now, traders are focused on a resistance area between 1.1730 and 1.1742, which reached a peak of 1.17435.

Price Breakthrough

If the price breaks through this resistance, attention will turn to Tuesday’s high near 1.1779. Future targets include the peak of 1.1788 on July 24 and the July 1 high of 1.18292, the highest level since September 2021. Traders will watch to see if the pair stays above the 1.1730-1.1742 range for signs of a bullish trend. Last year, the market reacted strongly to Lagarde’s hawkish comments, which led to lower U.S. yields and pushed the EUR/USD higher. At that time, the pair broke through key moving averages and tested resistance around 1.1742. This change in central bank tone set the stage for the volatility we have encountered since. Today, the situation has changed as the policy gap between the ECB and the Federal Reserve becomes more apparent. Eurozone core inflation unexpectedly rose to 2.8% in the latest update, prompting the ECB to pause its rate-cutting cycle. In contrast, the U.S. is considering a rate cut before the end of the year, as recent GDP growth slowed to an annualized 1.4%.

Buying Call Options

Given this context, it may be wise to consider buying near-term EUR/USD call options to take advantage of potential gains. A strike price around 1.1800 could be a good strategy, targeting the highs seen in mid-2024. This provides a defined-risk opportunity to profit if the ECB keeps its cautious stance and the pair breaks through recent resistance. However, uncertainty surrounding upcoming central bank meetings means we should be ready for significant price movements in either direction. Implied volatility for EUR/USD options has already climbed to 8.5%, up from a low of 5.2% earlier this year. A long straddle—buying both a call and a put with the same strike price—would allow us to profit from a major price swing, no matter the direction. To prepare for a potential reversal, we need to consider downside risks. The latest U.S. non-farm payroll report revealed a surprising addition of 250,000 jobs, highlighting underlying strength that could delay Fed rate cuts. Purchasing protective put options with a strike around 1.1650 would help shield our portfolios from a sudden drop if Fed officials become hawkish again. Create your live VT Markets account and start trading now.

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